First Oil, Will Gas Be Next?

A sharp drop in oil prices could push gas price below $3 a gallon in San Diego CountyCharles Langley with the consumer advocacy group UCAN says some gas stations have already started offering gas at $2.99 a gallon.

The average price on Friday was still above $3 per gallon, but that may not hold.  "If the price of oil keeps going down, there's no reason why it should stay above $3," said Langley.

But Langley said prices should be lower.  "Oil prices have dropped by 50 percent but gas prices haven't.  For an equal price drop, we should be at $2.30 per gallon of gas," said Langley.   He believes the discrepancy is because of price gouging by gas stations.

UCAN says oil prices peaked in early July at $147 a barrel.  But San Diego gas prices peaked in June at $4.61 per gallon.  That's a 50% drop for the price of oil but a 30% drop for unleaded gas.

But some say the low prices may not last very long.  Ralph Preston, senior analyst at the commodities trading firm Heritage West Futures says nothing is certain in these volatile markets.  "The swings in the market are unprecedented, hitting the highs and then falling this much has been dizzying.  But we could find ourselves back at the highs by the end of the year"  said Preston.

Preston said the weakening global economy, a stronger dollar, a reduction of speculators in the market and relative calm in the middle east have all contributed to the fall of oil prices. But a meeting of Organization of Petroleum Exporting Countries or OPEC next week could put a floor on prices.  And an increase in tensions in the Middle East could change things dramatically.

"Might as well fill up now and enjoy it for as long as we can .  On the horizon here, before (President) Bush leaves office, there may be more sabre rattling before coming ot of the Middle East" said Preston.

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